The new leader of the TUC has launched a strong attack on the Government for its "vicious spiral" of spending cuts which are hitting low-paid workers and jobseekers.

The coalition has reduced the living standards of some of the poorest people in the country through its welfare and benefits reforms, said Frances O'Grady, the first female leader of the TUC.

The Government is failing to offer the country a vision for the economy or hope for the future, she said.

"In short, our economy is sick and the Government's medicine is not working. We were told that short-term pain would deliver long-term gain, yet all we see are nasty side-effects with no sign of a cure. What is worse is that we now seem to be locked into a vicious downward spiral of cuts. They are not working so the Government cuts even more.

"Reducing the living standards of some of the poorest and most vulnerable in society, while attempting to tar them all as scroungers, is perhaps the very definition of a party determined to be seen as nasty and, what is more, it will further depress demand and slow the economy.

"People on the breadline spend every penny of their income, and mainly spend it in the local economy, while those who will benefit from the cut in the 50p tax rate coming this year are as likely to save it or take it offshore."

Ms O'Grady, who takes over from Brendan Barber, urged the Government to change course and abandon its austerity programme, while promoting a new industrial policy. The country needs a "laser-like" focus on creating decent jobs and apprenticeships, especially in parts of the country that need them most, she said.

Workers should be given a say over top pay through employee representation on remuneration committees and there should be a debate about economic democracy, or "worker voice".

"This all adds up to a very different approach to the economy and a challenge to all the political parties, employers and indeed unions," she said. "My strong belief is that when we look back at the period from the 1980s to the 2008 crash, historians will see these as exceptional times, as damaging in their way as the 1930s.

"What will dismay them most is how slowly we are building a new economic model to replace the one that fell with Lehman Brothers. There is surprisingly broad consensus that we need real change."